THE linking of US foreign assistance to the progress made by Pakistan in curbing terrorism is being questioned, both by the government and the opposition parties.

But are we alive to formulating a contingency plan to counter it? Apparently neither the government has, so far, set up any commission or a think-tank nor the political parties have recognised the need to assign this work to their policy or study groups.

The linking of foreign assistance by the US to our anti-terrorism performance may have a negative effect on the economy. The US assistance has come in many forms since 9/11. Pakistan was under heavy external foreign debt and liabilities worth $36.5 billion in 2001-02. The cost of debt servicing of this debt had assumed alarming proportion, in terms of its adverse impact both on our budget and the balance of payment.

In 2001-02, the total cost of debt servicing in terms of interest and payment of instalments of the principal amount was Rs225.5 billion which constituted 69.1 per cent of our total revenues. The expenditure-revenue budgetary gap arising from this cost of servicing was largely met from foreign loan disbursements, reducing net transfers to the economy for our development. It forced the government to borrow more from abroad for beefing up resources.

Following 9/11 and our decision to be an ally of the US and the NATO for fighting the war on terrorism, the total stock of bilateral debt aggregating $12.5 billion was rescheduled in December 2001. It provided an immediate relief to the extent of about $1.5 billion annually in debt-servicing, impacting favourably on our balance of payment.

Following the rescheduling at Paris Club, some bilateral donors wrote off a portion of outstanding debt. This included about $1.495 billion by the US and $48 million by Denmark and Commonwealth Development Corporation. In addition, an agreement was signed between US and Pakistan governments in June, 2003 to earmark $3 billion in assistance over the five- year period between 2005--2009. Of this, $1.5 billion is assigned for economic assistance and an equal amount for military aid. Pakistan has been receiving this assistance since 2005.

If the US assistance is linked with the progress on curbing terrorism, the direct assistance may decline or even cease if the conditionality attached to this assistance is not met.

The emerging scenario should be reckoned and a plan prepared for meeting any contingency. The plan should be structured around strict austerity measures which limit consumption and expenditure. Other steps should include; (a) restriction on imports of consumption goods through regulatory duties; (b) restriction on export of food items, as has been done recently by the government in case of wheat, lentils etc; (c) a clamp down on availability of bank credit for consumption goods, (d) abolition of all taxes, duties and fees on export goods; (e) no privatisation of state assets; (f) direct tax on income derived from speculative business as distinct from business income, (g) a liberal package of monetary and fiscal concessions to small scale industries and agri-business.

During the last two decades, the country has gradually moved towards market economy as a vehicle of development and simultaneous reduction of the role of the government as a facilitator and catalyst in the economic management. This transition has suffered from many bottlenecks e.g. no jobs for the educated, trade liberalisation without infra-structure of roads, energy, ports etc, agriculture without water-availability and research, growth without equity leading to widening of income gap between rich and poor, birth of monopolies and oligopolies etc.

The potential areas for government action are large – providing basic education and health services, infrastructure, research and extension services, regulation of monopolies and oligopolies and banks, provisions of social safety nets to the poor and needy and jobs to the unemployed through innovative schemes. Surely, our contingency plan must assign a more pro-active role to the government.

The blue-print of the contingency plan is just a sketch-work. The formulation of such a plan is intricate, complex and formidable, requiring an in-depth study and analysis by experts of each and every building block, so that negative effects on our economy can be neutralised with minimum sacrifice and cost.

One only wishes that the need for the implementation of such a contingency plan may not arise. However, we should not act like ostriches but be always alert and ready with a strategic plan to face the impending adversity.